NIGERIA EQUITY AGRICULTURE CROP PRODUCTION OKOMUOIL Earnings Release VETIVA RESEARCH www.vetiva.com OKOMU OIL PALM COMPANY PLC Earnings remain strong despite seasonal slowdown 9M 16 PBT doubles, 24% ahead of estimate Earnings growth outlook remains strong Cautious stance maintained on Q4 earnings Valuation revised higher despite cautious stance on Q4 earnings Similar to recent earnings from listed peer, OKOMUOIL s 9M 16 results came in strong with PBT up 100% y/y to N5.1 billion, 6% ahead of our estimate. As expected, Q3 revenue from the Oil Palm segment came off the Q2 record numbers (down 29% q/q to N2.7 billion) as seasonal effect weighed on volume; H2 is traditionally an off-peak period for Crude Palm Oil (CPO) production. When compared to the corresponding period of 2015 however (for better comparison), the 3-month Oil Palm revenue was up 27% y/y on the back of strong local CPO prices. Q3 revenue from the Rubber segment (export) also increased 5% y/y to N653 million largely supported by weaker naira which offset the impact of lower rubber prices. OKOMUOIL s overall 9M revenue rose 41% y/y to N10.9 billion, slightly below our N11.4 billion estimate. Earnings growth outlook remains strong Given that palm oil remains on the list of 41-items excluded from accessing official FX market, the outlook for oil palm pricing remains positive and key in driving OKOMUOIL s earnings in coming quarters. Moving away from prices however, we should highlight that we are equally positive on OKOMUOIL s organic growth outlook given management commitment to expansion projects. We understand that 4,000ha of the 10,000ha Extension 2 (latest acquired plantation) have been planted with oil palm seedlings till date. In 3-4 years time when the oil palm trees begin to yield oil palm fruits in commercial quantity, we expect to see growth in CPO production. Also, with the government still quite bullish on agriculture as a viable revenue diversification route, coupled with its increased drive to support local production, we expect OKOMUOIL to continue benefiting from protectionist policies in the near term. With this expected to keep local CPO prices strong, we improve our already positive outlook on earnings from OKOMUOIL s oil palm segment. On the rubber front, we highlight that international natural rubber prices have increased by 27% from August low amidst a couple of factors - strengthening car sales in China (largest consumer of rubber), concern on output from Thailand and an uptrend in price of synthetic rubber (substitute to natural rubber). Coupled with exchange rate impact, we expect further margin improvement from the OKOMUOIL s rubber segment. Valuation revised higher despite cautious stance on Q4 earnings Notwithstanding the more positive outlook on the rubber segment in Q4, we cut our FY 16 revenue forecast to N14.6 billion (Previous: N15.1 billion) as we further factor in the off-peak period effect of the oil palm sector in our model. Also, we take a cautious stance on Q4 earnings as we make provision for higher quarter s cost of sales (as a % of sales) in line with the spike observed in Q4 15 (111% of sales) amidst recognition of development costs in Extension 2. We note that more work has been done on the Extension 2 in 2016, however, 9M 16 cost of sales (as a % of sales) remains modest at 12% (9M 15: 16%). Be that as it may, FY 16 earnings will come in as record high, even as 9M earnings have already surpassed FY 15 level. We maintain our FY 16 PAT at N4.9 billion. Our target price has however been revised slightly higher to N48.81 (Previous: N45.18), supported by our improved post-2016 earnings outlook. Target price Company Statistics Price (N) Market Cap (N Mn) Net Cash (N Mn) Enterprise Value (N Mn) Shares Outstanding (Mn) NSE Bloomberg Reuters Ownership Structure SOCFIN Others Tominiyi Ramon* t.ramon@vetiva.com Equity Research 14 November 2016 HOLD Share Price Performance 30 days YtD 365 days 1.8 1.5 1.3 1.0 N48.81 42.47 40,513 1,200 39,313 954 OKOMUOIL.NL OKOMUOIL.LG OKOMUOIL.LG Price Movement (Rebased) 62.7% 37.3% 5.9% 46.4% 47.0% 0.8 Nov-15 Feb-16 May-16 Aug-16 Nov-16 OKOMU Business Description NSE ASI Source: NSE, Vetiva Research Okomu Oil Palm Company PLC. is an indigenous agro-allied company engaged in the cultivation of oil palm, processing of fresh fruit bunches into crude palm oil for resale, rubber plantation and processing of rubber lumps into rubber cake for export. The company was established in 1976 as a Federal Government pilot project covering an area of 15,580 hectares and was incorporated as a private limited liability company in 1979. Vetiva Capital Management Limited Lagos Office: Plot 266B Kofo Abayomi Street Victoria Island Lagos Nigeria +234-1-4617521-3 Abuja Office: Floor 02 Transcorp Hilton Hotel Abuja +234-9-8700686 Please Read: Important disclosures and analyst s certification appear in Appendix 1
N'million 9M'16 9M'15 Y/Y Chg Vetiva Estimates Variance Revenue 10,912 7,750 41% 11,415-4% Gross Profit 9,655 6,525 48% 9,103 6% OPEX -4,318-3,657 18% -4,334 0% EBIT 5,337 2,868 86% 5,075 5% Net interest expenses -422-349 21% -234 80% PBT 5,109 2,556 100% 4,841 6% PAT 4,176 2,205 89% 4,248-2% Gross Margin 88.5% 84.2% 79.7% EBIT Margin 48.9% 37.0% 44.5% PAT Margin 38.3% 28.5% 37.2% Income Statement FY14A FY15A FY16E FY17F FY18F FY14A FY15A FY16E FY17F FY18F N'mil N'mil N'mil N'mil N'mil $'mil $'mil $'mil $'mil $'mil Revenues 8,656 9,738 14,651 16,077 17,551 47 49 45 49 54 Cost of Sales -3,891-3,425-3,077-3,537-4,037-21 -17-9 -11-12 Gross Profit 4,765 6,313 11,574 12,540 13,514 26 32 36 39 42 OPEX -3,005-3,321-5,641-6,109-6,669-16 -17-17 -19-21 Operating income 1,760 2,992 5,934 6,431 6,845 10 15 18 20 21 Other gains/loss 192 286 293 322 351 1 1 1 1 1 EBITDA 2,910 4,423 7,334 7,938 8,464 16 22 23 24 26 Depreciation -958-1,145-1,108-1,186-1,268-5 -6-3 -4-4 EBIT 1,952 3,278 6,227 6,752 7,196 11 16 19 21 22 Interest expense -142-429 -303-230 -173-1 -2-1 -1-1 PBT 1,904 2,899 5,924 6,522 7,023 10 15 18 20 22 Income tax -345-268 -1,066-1,174-1,264-2 -1-3 -4-4 PAT 1,330 2,631 4,857 5,348 5,759 7 13 15 16 18 Balance Sheet FY14A FY15A FY16E FY17F FY18F FY14A FY15A FY16E FY17F FY18F N'mil N'mil N'mil N'mil N'mil $'mil $'mil $'mil $'mil $'mil Trade payables 772 889 923 1,061 1,211 4 4 3 3 4 Current provision and accruals 359 483 483 483 483 2 2 1 1 1 Other current liabilities 2,286 340 0 0 0 12 2 0 0 0 Current tax liabilites 1,003 612 612 612 612 5 3 2 2 2 Deferred tax liabilities 1,705 1,733 1,733 1,733 1,733 9 9 5 5 5 Financial liabilities 1,477 3,386 3,077 2,400 1,723 8 17 9 7 5 Share capital 477 477 477 477 477 3 2 1 1 1 Share premium 1,867 1,867 1,867 1,867 1,867 10 9 6 6 6 Revenue reserves 7,260 9,720 14,482 18,876 23,681 40 49 45 58 73 Total Liabilities & Equity 17,872 20,053 24,200 28,056 32,333 97 101 74 86 99 Inventories 1,416 1,491 1,538 1,768 2,018 8 7 5 5 6 Trade and other receivables 105 63 733 804 878 1 0 2 2 3 Other receivables and short term prepayment 627 297 943 1,035 1,130 3 1 3 3 3 Cash and cash equivalents 358 958 2,747 5,221 8,102 2 5 8 16 25 Property, plant and equipment 10,255 9,849 9,705 9,588 9,496 56 49 30 30 29 Biological assets 5,111 7,396 8,535 9,639 10,710 28 37 26 30 33 Total Assets 17,872 20,053 24,200 28,056 32,333 97 101 74 86 99 2
Cashflow statement FY14A FY15A FY16E FY17F FY18F FY14A FY15A FY16E FY17F FY18F N'mil N'mil N'mil N'mil N'mil $'mil $'mil $'mil $'mil $'mil Operating activities 3,166 3,999 4,938 6,509 6,931 17 20 15 20 21 Investment Activities -5,133-3,124-2,102-2,173-2,247-28 -16-6 -7-7 Financing Activities -743 1,611-1,048-1,861-1,804-4 8-3 -6-6 Net Cashflow -2,710 2,486 1,788 2,474 2,880-15 12 6 8 9 Opening cash balance 1,182-1,528 958 2,747 5,221 6-8 3 8 16 Closing Balance 358 958 2,747 5,221 8,102 2 5 8 16 25 Growth (%) FY13A FY14A FY15A FY16F FY17F FY18F Revenue -13% -2% 13% 50% 10% 9% EBITDA -32% -12% 52% 66% 8% 7% EBIT -40% -25% 68% 90% 8% 7% PBT -38% -29% 52% 104% 10% 8% PAT -42% -36% 98% 85% 10% 8% Profitability (%) FY13A FY14A FY15A FY16F FY17F FY18F ROAE 9% 8% 24% 34% 28% 24% ROAA 7% 6% 14% 22% 20% 19% EBITDA Margin 37% 34% 45% 50% 49% 48% EBIT Margin 29% 23% 34% 43% 42% 41% PBT Margin 30% 22% 30% 40% 41% 40% PAT Margin 24% 15% 27% 33% 33% 33% Per share data (N) FY13A FY14A FY15A FY16E FY17F FY18F Earnings/share 2.19 1.39 2.76 5.09 5.61 6.04 Dividend/share 1.00 0.25 0.10 1.00 1.00 1.50 Net Asset/share 23.71 10.07 12.65 17.64 22.25 27.28 3
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